On the Road at IMCA: Bernstein Backs the U.S.

Feb 04, 2013

Despite the hype, you may want to steer clients away from investing heavily in emerging markets, according to the former chief investment strategist for Merrill Lynch Richard Bernstein. And the Chinese stock market? Showing all the characteristics of a bubble, he said.

It’s the final innings on the emerging markets game, Bernstein told the New York Investment Management Consultants Association conference in New York today, joking that we know that a trend is over when Merrill Lynch puts out the focus portfolio. He noted that there were fundamental problems in the markets, for instance: China's corporate debt-to-GDP is the highest in the world, while India has the highest inflation rate in the world.

Instead advisors should steer their clients toward small and mid-capital U.S. companies, which are actually gaining market share in what Bernstein calls the “American Industrial Renaissance.”

While Bernstein talked up investing in American manufacturing, he also threw support behind the U.S. equity market. Not only does Bernstein think right now is a major bull market; this could be bigger than the ’82 market, also known as the Reagan Market that lasted from 1982 to 1999.

Many will cite the current uncertainty and investor fear as signs of a bearish market, but Bernstein argued that individual investors are not very good at picking bull markets.

He supported this position by saying that the traditional warning signs of a bear market—Federal Reserve tightening and inverted yield curve, significant overvaluation and over-enthusiasm for stocks—are not present.

Bull markets are not periods of “wine and roses,” Bernstein says, but instead periods of fear and indecision. “Uncertainty tells you that there are opportunities in marketplace,” he says.